COVID-19 - Summary of Relief and Support (18 April 2020)
Summary of relief available
The aim of this blog post is to provide a summary of the various items of support available related to Covid-19. The relief available includes:
Wage subsidy / Leave payment / Essential workers leave scheme
Rent relief
Tax loss carry-back scheme
General tax write offs / instalment arrangements / remission of use of money interest
Mortgage Repayment Holiday
Business Finance Guarantee Scheme
Regional Business Partner Network - COVID-19 Advisory Funding
Xero Assistance Programme (XAP) – Mental health support
Greater flexibility for taxpayers in respect of statutory tax deadlines
Other tax changes – depreciation, provisional tax, low value, continuity rules
TBC - Budget 2020 announcements
Other relief options – insurance/suppliers/Kiwisaver
Other legal changes
Benefit adjustments and increases
Further detail on these is outlined below.
1. Wage subsidy / Leave payment / Essential workers leave scheme
This topic has been covered extensively in our previous posts here and here.
2. Rent relief
There are two forms of rent relief – contractual and voluntary.
Contractual relief
Commercial leases are commonly drafted on the Auckland District Law Society (ADLS) Deed of Lease. The most recent version of the ADLS Deed of Lease includes the following term under clause 27.5:
“If there is an emergency and the Tenant is unable to gain access to fully conduct the Tenant’s business from the premises… then a fair proportion of the rent and outgoings shall cease to be payable…”
We have recently been privy to numerous discussions around this clause with lawyers, landlords and tenants. We have observed a wide range of interpretations of “fair” in this context. The outcomes vary from businesses to business, but in most cases we are seeing landlords and tenants working constructively together in good faith.
Voluntary relief
Those without a contractual right of rent relief should still contact their landlord and see if relief is available. The interests of landlords and tenants are broadly aligned. Landlords will want continuity of tenancy as it would likely be very difficult for landlords to find new tenants in the current economic environment.
3. Tax loss carry-back scheme
This scheme has only just been announced and there is limited detail available. It is very promising and could provide much needed cashflow relief to businesses. It broadly allows future tax losses to refund prior year taxes paid.
We outline more of the detail below:
A temporary mechanism will be included in tax legislation to be introduced the week beginning 27 April. Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year.
A permanent version of the scheme will be included in a tax bill later in the year after public consultation has been carried out.
Inland Revenue notes that taxpayers do not need to rush to re-estimate their provisional tax before 7 May. Part of the proposed law change would make it possible for them to re-estimate it after the date of the final installment. This will give them more time to work out any estimated loss for the 2020/21 income year.
Inland Revenue will be undertaking consultation with tax advisors to make the law and administrative guidance as clear as possible.
It is estimated that this scheme could lead to refunds and reduced tax bills of $1.2 billion in 2019-20 and $1.9 billion in 2020-21.
4. General tax write-offs / installment arrangements / remission of use of money interest
General write off
There remains an ability to seek write-off of core tax, interest and penalties for clients that are unable to pay. This is not specifically a COVID-19 related measure – however, some taxpayers may have a stronger case due to the impact of COVID-19 on their business.
The process involves submitting a proposal to the IRD and generally requires completion of detailed forms, forecasts and providing bank statements for all related accounts (often including private accounts) for 3 months. The quality of the proposal can have a significant impact on the likelihood of a successful outcome. The Crux team has considerable experience in IRD debt negotiations with a great level of past success. If you are planning to enter debt negotiations with the IRD please get in touch with us.
Installment arrangements
This is an arrangement to pay off taxes over time. Inland Revenue would normally charge use of money interest (see below). This is not specifically a COVID-19 related measure – however, the IRD may be more flexible in the context of COVID-19.
It is relatively easy to apply for and obtain an installment arrangement.
Remission of use of money interest
This is a COVID-19 related measure. To be eligible for remittance of penalties and use of money interest, the taxpayer must meet the following criteria:
The taxpayer has tax that is due on or after 14 February 2020
The taxpayer’s ability to pay by the due date, either physically or financially, has been significantly affected by COVID-19, and
The taxpayer will be expected to contact Inland Revenue as soon as possible to request relief and will also be required to pay the outstanding tax as soon as possible.
It is unclear how involved this process will be but Inland Revenue “will be trying to minimise the information they would ask to be provided during these unusual times”. They do state that taxpayers should be prepared to provide:
At least three month’s banks statements and credit card statements
Any management accounting information, and
A list of aged creditors and debtors.
5. Mortgage Repayment Holiday
The title sounds great, but this is just a mortgage deferral. Essentially the scheme allows a deferral of interest and repayments for up to 6 months.
It’s technically aimed at private situations (not businesses), but the reality is that many small businesses in New Zealand are intertwined with mortgage lending.
The most important aspect is that interest continues to accrue, and the money will need to be paid back. It’s still a great scheme to help with temporary cashflow issues.
There are other circumstances where a mortgage repayment holiday may make sense such as rebuilding working capital within the business and/or to repaying higher cost debt. For example, any residual cash resulting from the mortgage repayment holiday could be diverted to repaying a business overdraft or revolving credit facility. These types of facility are more flexible as you can still have access to the funds in the future if cashflow becomes tight.
If you need advice around whether a mortgage repayment holiday may be appropriate in your circumstances please get in touch with us.
You can apply for a mortgage repayment holiday directly with your bank.
6. Business Finance Guarantee Scheme
The Government will support targeted new loans (including increases to existing limits) to eligible businesses.
Under the scheme, businesses with annual revenue between $250,000 and $80 million can apply to their banks for loans up to $500,000, for up to 3 years. The scheme will offer a total of $6.25 billion in loans to New Zealand businesses.
Banks will decide whether financing can be supported under the scheme through its normal credit assessment process. Banks will also take into account a business' circumstances due to COVID-19.
The Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%. Banks will follow a normal lending process when they make lending decisions. Further details can be found on the banks’ websites.
You can apply directly with your bank.
7. Regional Business Partner Network - COVID-19 Advisory Funding
The Regional Business Partner (RBP) Network has set aside a portion of their funding to support businesses through COVID-19. Their focus will be to assist with funding of businesses to access 1-1 support with professionals in the following areas:
Business Continuity Planning
Finance and Cashflow Management
HR
Health and Wellness
Eligible businesses will be able to access fully funded advice from registered service providers (including Crux). From what we have seen so far, it appears that businesses are generally being given funding for around 2-5 hours of advice.
Business Eligibility:
Businesses need to register on the RBP Platform to access this support. Shortly after you have registered, an RBP Growth Advisor will get in touch with you to assess your eligibility.
Businesses will need to meet existing eligibility criteria:
Have undergone an assessment with a Regional Partner (i.e.: Growth Advisor)
Have fewer than 50 full time equivalent employees
Are registered for GST in New Zealand
Are operating in a commercial environment; and
Are a privately owned business, or are a Maori Trust or incorporation under the Te Ture Whenua Maori Act 1993 or similar organisation managing Maori assets under multiple ownership.
Additional Criteria:
The Growth Advisor needs to be satisfied that this support will be beneficial to the customer.
How We Can Help:
Crux is an approved service provider for the Regional Business Partner Network and we currently have the following services listed on the RBP marketplace:
COVID-19 Business Continuity Planning
COVID-19 Cashflow Forecasting & Scenario Planning
COVID-19 Finance Structuring and Funding Support
8. Xero Assistance Programme (XAP) – Mental health support
We have obtained further information on XAP:
The XAP programme is available to all Xero clients, their staff and their families (on Starter, Standard and Premium subscriptions)
Each eligible person is entitled to 3 free sessions. Additional sessions will have a cost
There are three ways to organise a session:
Email them at counsellingsupportnz@benestar.com
Phone them on 0800 360 364
Log into their website here and use the company identifier XEROCUSTNZ and token XEROCUSTNZ1
Anyone who uses this service must tell them that they are a Xero client (or an employee or family member of a Xero client)
9. Greater flexibility for taxpayers in respect of statutory tax deadlines
At this stage, it’s hard to know how useful this will be applied in practice. We recommend that taxpayer only consider this option in extreme cases.
Amendments to the Tax Administration Act 1994 are expected to be included in the tax bill to be introduced at the end of April. There will greater discretionary power to provide an extension to due dates and timeframes, or to modify procedural requirements set out in the Revenue Acts. This could include, for example, extending deadlines for filing tax returns and paying provisional and terminal tax.
10. Other tax changes – depreciation, provisional tax, low value, continuity rules
While some of the changes will be significant for some taxpayers, they are unlikely to have a significant immediate impact for most struggling businesses. The changes are:
Depreciation on commercial buildings
Depreciation deductions at 2% diminishing value will be re-introduced for commercial and industrial buildings from the 2021/22 income year. The depreciation deductions will be available to all sectors and will apply on a permanent basis. Building owners will be able to adjust provisional tax payments immediately in anticipation of the additional deductions that will become available.
Provisional tax
Currently, taxpayers with a residual income tax of NZ$2,500 or more are required to pay provisional tax throughout the year.
This threshold will be increased to NZ$5,000 from the 2020/21 tax year, meaning that less businesses (and individuals) will need to front the cash to meet their provisional tax obligations. It’s important to note that this is only a deferral.
Low value asset threshold
Currently low value assets (under $500) are deducted in the current year and higher value assets are depreciated (i.e. the expense is claimed over multiple years). As a temporary measure, assets costing up to $5,000 will be eligible for an immediate deduction for the 2020/21 income year (there is some vagueness of the exact dates – some sources suggest it ends 17 March 2021). From the 2021/22 income year, the existing NZ$500 threshold for an immediate deduction will be increased to NZ$1,000 on a permanent basis.
Loosening of the tax loss continuity rules
These rules (which can result in forfeited tax losses and imputation credits) will be relaxed with the expectation that this will lead to an increase in capital. The detail of the changes will be included in a tax bill introduced in the second half of 2020. The new rules will apply for the 2020-21 and later income years and will be modelled on the Australian rules with the introduction of a 'same or similar business' test, meaning the business must continue in the same or a similar way it did before ownership changed.
It’s too early to assess the impact of this and it will depend on the design of the rules.
11.. TBC - Budget 2020 announcements
Further measures will be announced on/before Thursday 14 May. Most commentators are predicting further business support.
We’d rather not speculate but we do want to highlight that more help is expected.
12. Other relief options – insurance/suppliers/Kiwisaver
We outline a few other options for relief:
Business interruption insurance
Some businesses will have business interruption insurance. We understand from industry sources that in many cases policy exclusions for events relating to infectious or contagious disease may apply meaning that cover is not available. We recommend talking to your insurance advisor to understand your policy.
Supplier negotiations
This is as simple as reaching out the suppliers and asking for help. It could be reduced prices, moving to consignment (paying for stock when it’s sold not when it’s received) or payment arrangements.
KiwiSaver - Access to Funds
There is an ability to withdraw KiwiSaver funds for significant hardship. Significant financial hardship includes when you:
Cannot meet minimum living expenses
Cannot pay the mortgage on the home you live in, and your mortgage provider is enforcing the mortgage
Need to modify your home to meet your special needs or those of a dependent family member
Need to pay for medical treatment for yourself or a dependent family member
Have a serious illness, and
Need to pay funeral costs of a dependent family member.
The Government was going to review the rules to make it easier to withdraw related to COVID-19. We haven’t heard any updates on this topic.
13. Other legal changes
The Government has announced changes to commercial leases and company law. Practically we consider these are likely to provide minimal support.
Measures to support commercial tenants and landlords
The Government is extending the current timeframe that commercial landlords can cancel a lease to from 10 to 30 working days. This is for both (a) the period the tenant is in arrears before the notice is given, and (b) the period required to remedy the breach before the landlord can cancel the lease and the mortgagee can exercise their rights to sale or repossession.
The Government is also extending the timeframes for lenders from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods. This will apply to commercial mortgages and home loans.
Legislation on these changes will be introduced in the week beginning on April 27 and will apply retrospectively once the bill is passed.
Company law changes – insolvent businesses
The Government is proposing amendments to the Companies Act 1993 as another lifeline in the wake of the COVID-19 outbreak.
The proposals are intended to keep affected companies afloat by:
Encouraging directors to keep trading through creating a “safe harbour” from insolvency breaches if directors consider, in good faith, that any debts could probably still be paid within 18 months.
Initiating a flexible “Business Debt Hibernation” regime by which creditors other than licensed insurers, registered banks and non-bank deposit holders can agree to freeze debts for six months while companies continue to trade on terms.
Removing or reducing clawback claims to voidable transactions between arms-length parties.
Relaxing statutory deadlines for filing and holding AGMs, as well as relieving entities from their obligations to comply with their constitutions if affected by COVID-19. This could include:
permitting e-meetings where otherwise disallowed, and
permitting the use of electronic signatures where otherwise impractical.
The proposals are not intended as a general “workaround” for duties to act honestly and in good faith.
14. Benefit adjustments and increases
Early on, the Government announced the following changes to benefits:
Core benefit increase $25 / week – permanent from 1 April 2020
Working for families changes – removal of hours test for in-work tax credit from 1 July 2020
Winter Energy Payment - double for 2020